September 21, 1994
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 93-1889
FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER
OF NEW BANK OF NEW ENGLAND, N.A.,
Plaintiff, Appellee,
v.
FEDDERS AIR CONDITIONING, USA, INC.,
Defendant, Appellant.
No. 93-1890
FEDDERS AIR CONDITIONING, USA, INC.,
Plaintiff, Appellant,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER
OF BANK OF NEW ENGLAND, N.A., AND AS RECEIVER OF
NEW BANK OF NEW ENGLAND, N.A., ET AL.,
Defendants, Appellees.
ERRATA SHEET
On page 2, line 1, replace "1886," with "1986,".
On page 4, line 5, first full paragraph, replace "bank),"" with
"bank"),".
On page 12, line 5, paragraph 2, replace "{$250,000]," with
"[$250,000],".
On page 13, line 6, first full paragraph, replace "preclude" with
"precludes".
On page 14, line 3, paragraph 2, replace "Williams'" with
"Williams".
On page 14, line 4, paragraph 2, add the word "of" before the
word "attorneys'".
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 93-1889
FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER
OF NEW BANK OF NEW ENGLAND, N.A.,
Plaintiff, Appellee,
v.
FEDDERS AIR CONDITIONING, USA, INC.,
Defendant, Appellant.
No. 93-1890
FEDDERS AIR CONDITIONING, USA, INC.,
Plaintiff, Appellant,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER
OF BANK OF NEW ENGLAND, N.A., AND AS RECEIVER OF
NEW BANK OF NEW ENGLAND, N.A., ET AL.,
Defendants, Appellees.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, U.S. District Judge]
Before
Torruella, Circuit Judge,
Coffin, Senior Circuit Judge,
and Boudin, Circuit Judge.
Richard d'A. Belin with whom Michael A. Albert and Foley, Hoag &
Eliot were on brief for appellant.
Marta Berkley, Federal Deposit Insurance Corporation-Legal, and
Kathleen C. Stone with whom David C. Aisenberg and Williams & Grainger
were on brief for appellees.
September 15, 1994
BOUDIN, Circuit Judge. On December 1, 1986, Fedders Air
Conditioning, USA, Inc. ("Fedders") signed a contract with
Liberty Effingham Limited Partnership ("Liberty") to sell to
Liberty a very large warehouse in Effingham, Illinois, owned
by Fedders. The warehouse covered 10 acres and the sale
price was $7 million. The warehouse was then under lease to
a tenant, Sherwin-Williams, and the contract provided that
Liberty would assume Fedders' obligations as landlord with an
important qualification concerning roof repairs.
The Sherwin-Williams lease provided that Fedders would
make certain roof repairs, as well as other alterations, to
eliminate leakage. In the sale of the warehouse to Liberty,
it was intended that Fedders would make the roof repairs at
its own expense. Accordingly, Fedders agreed to indemnify
Liberty for any loss or expense to Liberty arising under
specific repair provisions of the Sherwin-Williams lease. To
assure Fedders' performance, the parties agreed that of the
$7 million purchase price to be paid by Liberty, Fedders
would place $250,000 in escrow with Bank of New England ("the
bank").
Liberty made a deposit payment of $50,000 to Fedders and
originally intended to give Fedders the balance--$6,950,000--
at the closing; Liberty expected to borrow $6.7 million from
Bank of New England and to furnish the balance ($250,000)
itself from its own account in the same bank. Fedders, it
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was intended, would then return $250,000 to Bank of New
England to be held in an escrow account for Fedders, pending
completion of Fedders' repair obligations under the lease.
(The stated figures are approximate, as there were other
minor adjustments involved in the closing.)
At some point prior to the closing, it occurred to the
parties that instead of having the bank transmit the full
balance due on the purchase to Fedders and then take back
$250,000 for the escrow account, it would be simpler to have
the bank retain $250,000 for the escrow account and pay
Fedders only the net amount. The parties agreed to follow
this course. At the closing in December 1986, Fedders was
paid the $6.7 immediately due to it (the $7 million purchase
less the $50,000 deposit and $250,00 escrow).
For its part, Liberty gave Bank of New England its
promissory note for $6.7 million to cover the bank loan
needed to complete the purchase. The bank in turn signed the
escrow agreement acknowledging that the bank had received the
$250,000 "deposit" to be held in escrow and invested in a
"commercial bank money market account" (unless otherwise
directed). In fact, for reasons that are not explained, the
bank did not set up the escrow account, either then or later.
Although it held Liberty's note for $6.7 million, the bank
appears to have recorded a draw-down on the loan of only
$6,450,000.
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After the closing Fedders did not satisfactorily
complete the roof repairs. Liberty eventually replaced the
entire roof at a cost of over $1 million. In 1987, Liberty
brought suit against Fedders in Massachusetts state court to
recover the repair cost from Fedders. Later Liberty added
Sherwin-Williams as a defendant, to obtain declaratory relief
against it; and Sherwin-Williams then claimed damages from
Fedders and Liberty on account of roof leaks it had suffered.
In December 1990 Liberty assigned its claim in the case to
Bank of New England as part of a workout of its debt to the
bank.
In January 1991, Bank of New England became insolvent
and the Federal Deposit Insurance Corporation became its
receiver. 12 U.S.C. 1821(c)(2). The FDIC transferred the
Liberty claim against Fedders to New Bank of New England,
N.A. ("the bridge "bank")," see 12 U.S.C. 1821(n), as part
of a purchase and assumption agreement. New Bank of New
England in turn assumed Bank of New England's contractual
liability for deposit accounts. In July 1991, the bridge
bank was itself dissolved and the FDIC became its receiver.
In August 1991 the FDIC, as receiver for New Bank of New
England, removed the Liberty suit against Fedders to the
district court, see 12 U.S.C. 1819(b)(2), and was
substituted for Liberty.
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In April 1992, Fedders filed suit in federal district
court in Massachusetts against the FDIC as receiver for both
the failed Bank of New England and for the dissolved bridge
bank. On several theories (insured deposit, breach of
contract, breach of fiduciary duty, unjust enrichment),
Fedders sought to recover the alleged $250,000 escrow. The
original Liberty action against Fedders, previously removed
to the district court, was partly consolidated with the new
Fedders action. The district court tried the two cases as a
bench trial beginning on April 12, 1993. Shortly before the
trial, Sherwin-Williams made its own settlement and ceased to
be a litigant.
The district judge, sitting as the factfinder, found
against Fedders in the original Liberty action and awarded
the FDIC $775,000 for the roof replacement. At a later date,
the district judge also rejected Fedders' claims to recover
the escrow amount from the FDIC. The court found that
Fedders was not a "depositor" entitled to recover an insured
deposit because no escrow account had ever been established,
saying:
The escrow account that [the failed Bank
of New England] was contractually bound
to create and formally acknowledged that
it had created was in fact never created.
Fedders therefore never acquired the
status of a "depositor," in the sense
relevant to the present litigation,
notwithstanding [the bank's] assurances
in the Escrow Agreement. Consequently,
FDIC as receiver did not succeed to any
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"deposit" liability associated with the
phantom escrow account . . . .
Although the failure to set up such an account gave Fedders a
contract claim against Bank of New England, the court found
that Fedders had waived this claim by failing to assert it
within the time fixed for asserting claims against the FDIC
as receiver for a failed bank. 12 U.S.C. 1821(d).
Finally, returning to the original Liberty action, the
court awarded the FDIC, as receiver for New Bank of New
England, attorneys' fees in the amount of $64,855.91. The
court ruled that Fedders was liable for this amount under its
indemnity agreement with Liberty, Liberty's rights having
been assigned to the failed bank, then acquired by the bridge
bank pursuant to the purchase and assumption agreement and
finally held by the FDIC as the latter's receiver. How this
attorneys' fee award was calculated is an issue to which we
will return.
Fedders then appealed to this court. First, it disputes
the district court's disposition of Fedders' claims against
the FDIC relating to the escrow amount. Second, Fedders
contests the award of attorneys' fees to the FDIC in the
original Liberty action; Fedders does not challenge the
underlying award of $775,000 to the FDIC for Fedders' failure
to repair the roof. We begin with the escrow issue which is
by far the more complicated of the two, and thereafter
address the attorneys' fees award.
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At the outset, it is important to understand that
Fedders' central claim on appeal is that it has made a
"deposit" in Bank of New England, which the FDIC has
committed itself to honor without regard to the normal
$100,000 limitation or any objection as to the timeliness of
a "deposit" claim.1 The FDIC in turn does not dispute this
alleged commitment but asserts that there was no "deposit"
within the meaning of the statute and, further, that its
regulations make the bank's records conclusive. This is a
civil case, and we take the issues as the parties have framed
them.
One begins in construing a statute with its language.
The statutory definition of deposit is two pages long, 18
U.S.C. 1813(l), but Fedders relies principally upon clauses
that include as deposits two specific categories: "the unpaid
balance of money or its equivalent received or held by a bank
. . . in the usual course of business and for which it has
given or is obligated to give credit," and "money received or
held by a bank . . . in the usual course of business for a
1The FDIC as receiver is not the insurer of deposits--
the FDIC insures in its corporate capacity--but the FDIC does
pay off insured deposits, taking the money from the
appropriate insurance fund. 12 U.S.C. 1821(f). The FDIC
waived the ordinary $100,000 limit in this case. It also has
not claimed that the request for return of an insured deposit
is untimely, nor has it offered any objection based on its
separate capacity as insurer and receiver.
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special or specific purpose . . . including . . . escrow
funds . . . ." 12 U.S.C. 1813(l)(1), (3).
In response, the FDIC has chosen to stress the
underlined phrase that is part of the definition of deposit
under both subparagraphs of section 1813(l) relied on by
Fedders: money or its equivalent received or held by a bank
in the usual course of business. The FDIC also underlines
the term "account" which appears only in subparagraph 1,
defining "deposit" to include
the unpaid balance of money or its equivalent
received or held by a bank . . . in the usual
course of business and for which it has given or is
obligated to give credit, either conditionally or
unconditionally, . . . to a[n] . . . account . . .
.
Here, says the FDIC, Bank of New England "did not
receive any money from Fedders, and there was no account."
On the basis of this language, the FDIC distinguishes a
number of cases, several of which are older but otherwise
helpful to Fedders, such as FDIC v. Records, 34 F. Supp. 600
(W.D. Mo. 1940) (deposit insurance covered payment to cashier
who pocketed the cash). More important, the reference to
money "received or held" encourages the FDIC to rely on FDIC
v. Philadelphia Gear Corp., 476 U.S. 426 (1986). "The
analysis" in that case, the FDIC tells us, "is much the same
in this case."
We can easily put to one side two of the FDIC's three
points based on the statute and Philadelphia Gear. The fact
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that Fedders paid no money to the bank means nothing; Liberty
gave the bank a note, readily described as "the equivalent"
of money, to cover a loan by the bank to Liberty, $250,000 of
which the bank promised to retain as an escrow deposit for
Fedders. Thus, the equivalent of money was "received."
Indeed, nothing in the substance of the transaction would be
different if, as the parties had originally intended, the
bank had given Fedders the $250,000 and Fedders had
immediately given it back to the bank.
Philadelphia Gear is likewise not in point. There the
Supreme Court rejected a claim that a standby letter of
credit backed by a contingent promissory note qualified as a
"deposit" under section 1813(l)(1). Although the FDIC
admitted that an ordinary letter of credit would be treated
as a deposit, it distinguished the standby letter (a promise
by the bank to pay the seller only if the buyer did not)
based on an administrative practice of not treating standby
letters as deposits. In accepting this longstanding
interpretation, the Court noted that the buyer who authorized
the letter had not even given the bank anything beyond a
contingent promise to pay. Id. at 440.
But Philadelphia Gear did not say that it is a condition
of all "deposits" that hard currency be paid to the bank; the
Court was concerned with distinguishing narrowly between
standby and ordinary letters of credit. In fact the Court
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noted the FDIC's own concession that an ordinary letter of
credit in the seller's favor, backed by the buyer's
unconditional promissory note, would be a deposit. Id. at
440. Here, such an unconditional note for a sum including
the $250,000 escrow was given to the bank.
Although the "held or received" language and
Philadelphia Gear are red herrings, the remaining point in
the FDIC's statutory argument--the statutory reference to an
"account"--does deserve attention. Under the statute, the
money or its equivalent must not only be held or received by
the bank, but must (unless another alternative condition is
satisfied) be a payment "for which [the bank] has given or is
obligated to give credit . . . to a[n] . . . account." 12
U.S.C. 1813(l)(1). Here, the FDIC says, there was no
account, so the money or its equivalent cannot be deemed a
deposit.
We agree with the FDIC, and with the district court,
that there was no account established pertaining to the
$250,000 escrow; but the statute speaks not only of money or
its equivalent for which the bank "has given" credit to an
account but also money or its equivalent for which the bank
"is obligated" to give credit to an account. Here Liberty
gave a promissory note to the bank in exchange for a loan,
$250,000 of which the bank promised to place in an escrow
account for Fedders. Although the bank failed either to
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create the account or deposit the money in it, it does appear
that it was "obligated" to give credit to an account for this
amount.
Fedders relied on the "obligated" language in its brief,
and the FDIC has not answered it. There may be answers not
obvious to us in this very technical area. Still, the five
paragraphs of section 1813(l) define "deposit," technically
but elaborately, to cover a very large number of
transactions, many of which might not be called deposits by a
lay person. In sum, we hold that the promissory note was the
equivalent of money; that it was held or received by the bank
in the usual course of business to support a loan; and that
in exchange the bank was "obligated" to credit an account in
the amount of $250,000.
We do not reach the alternative argument made by
Fedders that the "escrow" reference in subparagraph 3 makes
the transaction a deposit even if subparagraph 1 does not.
We do note that there is no parallel "obligated" language in
subparagraph 3, and the FDIC could argue that only funds
actually treated by the bank as escrow funds are embraced by
subparagraph 3. But the FDIC has made no expressio unius
argument that an escrow payment excluded from subsection (3)
is automatically outside subsection (1), and we doubt that
any such exclusivity is implied.
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The FDIC's other line of defense is its own regulation;
under 12 C.F.R. 330.3(h), it asserts that "the deposit
account records of the failed bank are controlling for
purposes of determining deposit insurance coverage." That
section, after explaining that ownership under state law of
funds on deposit is a necessary condition for insurance
coverage, continues:
"Deposit insurance coverage is also a
function of the deposit account records
of the insured depository institution . .
. which, in the interest of uniform
national rules for deposit insurance
coverage, are controlling for purposes of
determining deposit insurance coverage."
The FDIC then tells us that "numerous courts" have held that
the FDIC may rely "exclusively" on the "account records" of
the failed institution to determine deposit insurance
coverage.
Assuming this to be so, we fail to see why the FDIC
believes that "account records" are missing in this case.
Far from defining "account records" narrowly, a companion
regulation states that "deposit account records" include a
variety of specific items (e.g., account ledgers,
certificates of deposit, authorizing corporate resolutions)
and "other books and records of the insured depository
institution [including computer records] which relate to the
depository institution's deposit taking function . . . ." 12
C.F.R. 330.1(d) (omitting exclusions not here relevant).
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In this case the district court made a specific finding,
not challenged by the FDIC on appeal, that Bank of New
England "held . . . . a copy [of the escrow agreement] in its
records." This agreement, signed on behalf of the bank,
explicitly acknowledged "receipt of said amount [$250,000],"
denominated the "Deposit"; and the document provided for the
deposit to be invested in a "commercial bank money market
account" (unless a different investment was approved by
Fedders in writing). In other words, the bank's books and
records did include evidence of the "deposit."
We might have a different case if the FDIC had disputed
the amount of the deposit and invoked 12 C.F.R. 330.3(i).
That regulation does purport to make the "deposit account"
conclusive as to the "amount" of a deposit. Assuming a
"deposit account" is something narrower than the bank's books
and records--which it may well be--the FDIC has never
challenged the $250,000 figure nor has it relied upon
subsection (i). Once again, after years of litigation, it
is fair to resolve the case in the terms that the parties
have presented it.
Accordingly, we think it is unnecessary for us in this
case to plunge ourselves into the morass of decisions that
bear on whether and when erroneous bank records are
conclusive against the depositor and when correctly recorded
but unauthorized activity by a bank (e.g., paying an insured
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account to a thief) precludes an insurance claim.2 These
cases reflect the severe tension between two values: the
legitimate expectations of the depositor and the regulator's
desire to rely upon existing records to expedite the handling
of bank emergencies. Not surprisingly, the cases do not all
point the same way. Here, however, the FDIC's premise that
the "deposit account records" defeat Fedders' claim is
mistaken.
What remains is the Fedders attack on the district
court's award of attorneys' fees. The only basis for such
fees was the clause in the indemnity agreement between
Fedders and Liberty incident to the purchase and sale of the
warehouse and the latter's assumption of the Sherwin-Williams
lease. The agreement, as construed by the district court,
required Fedders to indemnify Liberty for attorneys' fees
arising from litigation related to certain roof-repair
provisions of the lease. The FDIC has succeeded to Liberty's
rights of indemnification.
In the district court the FDIC urged that the indemnity
covered all of its attorneys' fees incurred in the roof
repair action originally brought by Liberty against Fedders.
The district court, however, determined that only the portion
2See, e.g., In Re Collins Securities Corp., 998 F.2d 551
(8th Cir. 1993); Abdulla Fouad & Sons v. FDIC, 898 F.2d 482
(5th Cir. 1990); Jones v. FDIC, 748 F.2d 1400 (10th Cir.
1984); FDIC v. Irving Trust Co., 137 F. Supp. 145 (S.D.N.Y.
1955); FDIC v. Records, 34 F. Supp. 600 (W.D. Mo. 1940).
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of Liberty's or the FDIC's attorneys' fees that related to
Sherwin-Williams own lease claims, asserted by Sherwin-
Williams in that case, were covered by the indemnity
agreement. Sherwin-Williams ceased to be a party after very
lengthy pretrial activity but shortly before the trial
itself. On appeal, this construction of the indemnity is not
disputed by either side. The only issue concerns the
district court's apportionment of counsels' bills.
Because the Liberty and FDIC counsel had not kept
records to segregate particular hours to work relating to the
Sherwin-Williams' claims, the district court made its own
apportionment. Of the $165,000 of attorneys' fees incurred
by Liberty or the FDIC in Liberty's action, counsel estimated
for the court that 50 percent of the total attorney time was
attributable to the Sherwin-Williams claims. The district
court found this boilerplate conclusion insufficient standing
by itself; but its own evaluation of the record persuaded it
that the work done by Liberty or FDIC counsel on the Sherwin-
Williams claims justified an award of just under $65,000 in
attorneys' fees, calculated as follows:
First, of the fees incurred by Liberty between April
1988 and March 1991, the district court found that just under
$25,500 was attributable to the Sherwin-Williams claims
(rather than the $36,000 claimed by the FDIC based on its 50
percent apportionment). The court examined each of the
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invoices submitted by counsel and for each one made a
separate estimate (ranging from 15 to 50 percent) as to the
portion of each invoice so attributable. The court said it
was resolving all ambiguities against the FDIC since it bore
the burden of proof as to fees.
Second, of the fees incurred by the FDIC, as receiver of
the banks who succeeded to Liberty's interest, the court
found that just under $40,000 was attributable to the
Sherwin-Williams claims (instead of the $46,500 claimed by
the FDIC). The court assigned to those claims 50 percent of
the fees incurred prior to December 31, 1992, based on its
review of the relevant docket entries; and it similarly
assigned 25 percent of the fees between that date and April
8, 1993 (when Sherwin-Williams settled its claims) since by
1993 the roof repair claim against Fedders was moving toward
trial and the Sherwin-Williams damage claims toward
settlement.
Fedders' argument on this appeal is straightforward.
The company does not attack any of the specific computations
made by the court. Instead, it says simply that Fedders'
indemnity commitment to Liberty is a contract governed by
Illinois law; that Illinois law requires "detailed proof of
the amount and basis" for attorneys' fees even where
attorneys' fees are promised by contract; and that such
detailed proof was not supplied in this case. Fedders' main
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authority, Kaiser v. MEPC American Properties, Inc., 518
N.E.2d 424 (Ill. App. 1987), does indeed say that the
attorneys' fee claimant must present "detailed records
maintained during the course of the litigation containing
facts and computations upon which the charges are
predicated." Id. at 428.
We will assume from the district court's description of
what the court had to do (and from the FDIC's silence on this
point) that the FDIC counsel certainly did not furnish
information needed to separate the Sherwin-Williams time from
the remaining time. But while such a deficiency would surely
permit the district court to reject the fee application,
nothing in Kaiser requires that the court do so if it can
fill the gap in proof itself. In fact, in Kaiser the
appellate court appeared to agree with the claimant that "the
trial court ha[d] the discretion to consider the content of
the record [i.e., "the entire case file"] to determine a
reasonable fee"; but the court upheld the trial judge's
discretionary decision not "to conduct the in-depth
examination necessary to locate documents and pleadings" to
substantiate individual items. 518 N.E.2d at 429.
Even if we treat Kaiser as an authoritative statement of
Illinois law--and the FDIC disputes this--it arguably
licenses, and certainly does not clearly preclude, a trial
judge's own decision to supply from elsewhere in the record
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supporting information and inferences that the claimant
neglected to collect. Here, the district court made
precisely this effort, explaining that the FDIC's original
fee request was based on a reasonable reading of the
indemnity, even though the court ultimately read the
indemnity more narrowly. This course was not required, but
neither do we see why it was forbidden.
Fedders identifies no other error in the calculations.
It does not try to show how the fee request information was
deficient beyond the obvious failure to allocate (except by
the inadequate boilerplate 50 percent estimate alleged to
reflect all of the work over a lengthy period). Nor does
Fedders offer specific attacks upon the district court's own
computations (which were several pages long)--for example,
the decision to assign 25 percent of the April 1, 1988,
invoice to the Sherwin-Williams claims--by seeking to show
that they are irrational or without basis. Limiting
ourselves to the narrow challenge made by Fedders, we
conclude that the award of attorneys' fees was justified.
More broadly, we think that the district court admirably
handled this complex, double-barreled law suit and agree with
its treatment of practically all of the issues raised. On
the single one where we part company--the "obligated" clause
of section 1813(l)(1)--we note that the district court did
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not discuss the clause, possibly because it was not stressed
by counsel at the trial or the subsequent hearing.
The judgment is affirmed in part and reversed in part
and the matter remanded to the district court in order to
permit the judgment entered against Fedders in favor of the
FDIC to be adjusted--whether by reduction or by a counter
judgment in favor of Fedders--to reflect the $250,000 deposit
that the bank was obligated to escrow (including any interest
adjustment that the district court may find appropriate) and
that is now owing to Fedders. No costs.
It is so ordered.
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